You are the Finance Director of X Pte Ltd, a large Singapore subsidiary of an internationally based financial services organisation which has grown substantially in recent years. You have been in the role for 4 years and believe that there is a genuine chance that you might be in line for promotion to the Group Finance Director position within the next couple of years. You believe that such a promotion is merited. You have committed yourself to the organisation and your work-life balance is heavily weighted towards the former.

The X Group had a bad couple of years worldwide, partly due to the economic downturn in most areas, but also due to poor management in some key areas of operations (but not in Singapore). In response to these poor results, the US parent had insisted on 5% cost cutting efficiencies in the current year for all subsidiaries. For you in the Singapore subsidiary, this is a very tough target and you have just about achieved it, but at the cost of a dispirited workforce and a range of economies which could not be sustained in the long term. The need to ensure that the company satisfies all of its regulatory requirements is a major issue and these cuts have left your organisation vulnerable.

At a recent video conference, Mr Y, the American Group FD, informed you that all subsidiaries must achieve a further 10% efficiency saving in the subsequent year (for which you are currently preparing the budgets), but that all operational and sales targets must still be met. This news is greeted with a degree of incredulity by you and your colleagues but it is made very clear that this is not negotiable.

You know that this is going to be almost impossible to achieve in practice and so, the next day, you call Mr Y and share these views with him. He tells you in no uncertain terms that your views are unhelpful and that if you are not prepared to implement these cuts, then someone else will be found who can.

You point out that the cuts will severely impact on the business’s ability to satisfy its legal and regulatory responsibilities, “We are struggling as it is to satisfy our compliance requirements.”

Mr Y replies ominously, “That is your responsibility, not mine.”

By the end of the call, it is crystal clear: either cuts will be made or you will be fired.

Once again, you think to yourself – can further costs be trimmed without impacting the company’s compliance needs? You come to the same conclusion that this does not appear possible unless the company is willing to live with the significant risk that it will not comply with the regulatory requirements.

What do you do now?

Analysis of Scenario: What are the readily-identifiable ethical issues for your decision?

I. For you personally

Is there someone else in the organisation that you can discuss this issue with? Others in the organisation must be aware of the need for the company to comply with its regulatory requirements?

Can you elevate this matter for full discussion at a future meeting of the group board?

If, after proper debate, the proposals are still to be enacted, then you will need to consider your position if you still believe that the impact of the proposals will put the company in a position where it is no longer able to satisfy its regulatory requirements.

Is there a need to consider whistle-blowing?

II. For the Company

Has the impact of these proposed cuts on the company’s ability to meet its compliance requirements been thought through properly?

III. Who are the key parties who can influence, or will be affected by, your decision?

‘You’; your fellow directors; the group FD and his fellow directors; the shareholders; the employees; the relevant regulatory body; and customers and suppliers of the company.

IV. What fundamental ethical principles for accountants are most applicable and is there an apparent conflict between them?

- Integrity: The need to ensure your fellow board members and those of the parent company are aware of the company’s obligation to meet its compliance requirements.

- Objectivity: The need to be able to assess the impact of these proposed cuts and the consequences resulting from non-compliance, without personal bias.

- Confidentiality: If the company decides to go ahead with this level of cuts, is there any need to consider any possible whistle-blowing requirements?

- Professional behaviour: The need to effectively communicate the compliance risks of this proposed cost cutting exercise to your fellow board members and those of the group.

V. Is there any further information (including legal obligations) or discussion that might be relevant?

What whistle-blowing requirements exist within your organisation and within your regulated sector?

Acknowledgement: This case study was published by the Technical Policy Board of The Institute of Chartered Accountants of Scotland (ICAS), and adapted by the Institute of Singapore Chartered Accountants (ISCA) with the permission of ICAS

The Institute of Singapore Chartered Accountants (ISCA) is the national accountancy body of Singapore. ISCA’s vision is to be a globally recognised professional accountancy body, bringing value to our members, the profession and wider community.